State Tax Comparison for Retirees

Every retirement publication runs an annual “Best States for Retirement” list. They're ranked by some single dimension — total tax burden for a hypothetical average retiree, or maybe a weighted score that someone invented. The lists are useful for browsing, but the rankings don't apply to you until you run YOUR specific income mix and home value.

Income mix matters more than the headline rate. Pennsylvania has a 3.07% flat income tax — sounds high relative to no-income-tax Florida. But Pennsylvania exempts all retirement income (SS, pensions, IRA/401k withdrawals). For a retiree with $80K of pure retirement income, Pennsylvania's state income tax bill is $0 — same as Florida. Where Florida wins is the absence of inheritance tax (PA has one).

Property tax can dwarf income tax. Texas has no state income tax, but property tax averages 1.80% of home value annually. On a $500K home, that's $9K/yr, far exceeding what most retirees would pay in income tax in a moderate-tax state. Illinois exempts all retirement income but has the nation's highest property tax (2.27% average), which can wipe out the income-tax savings entirely.

Social Security taxation varies state by state. 13 states still tax SS to some degree (down from 27 a decade ago, the trend is favorable). Some states tax it for everyone, some have income-based exemptions. Colorado, for example, has a $20K SS exemption threshold — which most retirees with average benefits never exceed. Minnesota, North Dakota, and Vermont fully tax SS.

The estate-tax cliff is real. Twelve states + DC have their own estate taxes, often with much lower exemptions than the federal $13.6M (2025). Massachusetts and Oregon kick in at $1M, Washington at $2.2M. If you're high-net-worth, the choice between Florida ($0 estate tax) and Washington ($2.2M exemption + 10-20% rate above) can mean six- or seven-figure differences for your heirs.

The cost-of-living trade-off is independent of taxes. Tennessee has no income tax, low property tax, and 90 COL (10% below national average). But healthcare access varies by region, and not everyone wants to live in Tennessee. Hawaii has the highest income tax and 193 COL but the lowest property tax — the math only works if you already owned the home before retiring there.

This tool gives you a starting point. The actual decision should weigh family proximity, healthcare networks, climate, community, and the cost of the move itself (closing costs, capital gains on appreciated homes, moving expenses) against the multi-decade tax savings. For most people, a delta under $5K/year doesn't justify the move; over $15K/year usually does.